Millard “Mickey” Drexler may have just fired the starting gun for anew and potentially transformative round of industry dealmaking.
By joining with private equity firms TPG Capital and Leonard Green& Partners in a $3 billion buyout of J. Crew Group Inc., Drexler isalso readying the company for expansion and giving its new concepts likeMadewell and Crewcuts a chance to mature away from Wall Streetscrutiny.
Under terms of the deal signed Tuesday, Drexler willremain chairman and chief executive officer and keep his equity stake inthe business, which is currently 5.4 percent. Stockholders will be paid$43.50 a share — a 15.5 percent premium over Monday’s closing price butstill below the more than $50 the stock sold for in April.
Investors pushed up J. Crew shares 16.8 percent Tuesday to $43.99, asthe S&P Retail Index slipped 0.8 percent, or 3.74 points, to 484.47,and the Dow Jones Industrial Average, conscious of European debtconcerns and new hostilities on the Korean peninsula, fell 1.3 percent,or 142.21 points, to 11,036.37.
The retailer will consider otheroffers until Jan. 15. If nothing better materializes and shareholdersgive the thumbs-up, the deal, which was first reported by The New YorkTimes, is expected to close in the first half.
“We are in thisfor the long term, and we do what we do day in and day out so we candeliver the best possible products to our customers,” Drexler saidTuesday.
Private equity firms flush with cash have been circlingretail properties, which were forced to get leaner because of therecession and are inviting acquisition targets because of relatively lowstock prices.
“This is the start of the trend we’ve all beenwaiting for,” said David Bassuk, managing director at AlixPartners’retail practice. “The news has always been, the private equity playersare swirling around, watching what’s going on. This is the story of themputting their money to work.”
The holiday season could singleout the best retail opportunities and lead to a “very active” round ofmergers and acquisitions in the first quarter, Bassuk said.
“Youwill see more retail deals in the $1 billion to $3 billion range,” saidDavid Shiffman, investment banker and managing director at MillerBuckfire & Co. “At that size range, large-cap and midcap [privateequity] firms can put significant capital to work. In addition,strategic acquirers are building large cash balances and will useM&A for growth.”
The economic downturn set the stage fordeals that are now coming to fruition. In addition to J. Crew’s pendingbuyout, Bain Capital Partners completed its $1.8 billion acquisition ofThe Gymboree Corp., which closed Tuesday.
“We’re going into 2011with some tailwinds,” said Arash Farin, an investment banker at TheSage Group, noting overall holiday sales are expected to rise modestly.“There’s a lot of private equity money that is looking for new deals.”
The M&A machinery virtually shut down for a time during the depthsof the recession and money piled up, leaving some private equity firmsto choose between spending it or giving it back to their investors.McKinsey & Co. estimated private equity firms have about $100billion to spend on retail.
Faced with consumer apathy becauseof the recession, retailers found religion of sorts and cut costs andinventories, becoming the tight operating machines they always claimedto be.
But something more fundamental might also be going on.
Marc Cooper, managing director at Peter J. Solomon Co., said J. Crew isa bit of an outlier in that it is a sizable retailer with “someinteresting growth potential.” Other established retailers that couldget taken private are becoming “cash generators” with fewer prospectsfor growth, he said.
@fearofgod and @maxfieldla have teamed up on a pop-up installation. The store, located in the gallery space across from Maxfield’s Melrose Ave location, is the site of the brand’s House of God pop-up in which Fear of God founder @jerrylorenzo has created a church-inspired installation. A dozen vintage church pews sit in front of an LED screen playing 90s gospel singers in an effort to re-create an environment akin to a Southern Baptist Church, Lorenzo explained. Read more about the pop-up on WWD.com #wwdfashion (📷: Jennifer Johnson)
Known for his sleek, sophisticated American glamour, Norman Norell is the subject of an upcoming exhibition at @fitnyc. “Norell: Dean of American Fashion,” which runs from February 9 through April 14, will feature approximately 100 ensembles and accessories. His best work is exemplified by the designer’s glittering “mermaid” gowns frosted with thousands of hand-sewn sequins – like the one pictured. (📷: William Helburn) #wwdfashion
For pre-fall 2018, @balmain didn’t let go of the glitz. A crystal embroidered baseball jacket priced at around $40,000 hangs in the “couture” section of the brand’s first men’s pre-collection. Sporting the words “Balmain Army” across the back, the item took around two months to make. “When it was completed, it was like Christmas, it was like, ‘It’s done, it’s exactly what I wanted,’” said Balmain’s creative director @olivier_rousteing during a tour of the collection in a Paris showroom on Monday. #wwdfashion
Eighty degree temperatures and outdoor installations at the annual Art Basel Miami Beach called for bright, elevated beachwear. See more street style pictures on WWD.com. #theyarewearing #ABMB (📷: @lifeinreverie)
Following September’s emotional tribute to her brother Gianni, Donatella Versace wanted to bring the spring show’s deep sense of intimacy to her @versace_official pre-fall collection. Donatella found inspiration in Versace Palazzo in Milan and from Gianni’s opulent apartment. Archival patterns and new motifs were splashed on silk shirtdresses and fitted jersey frocks. See the rest of the photos on WWD.com. #wwdfashion
Demna Gvasalia continues to shake up the Paris fashion calendar — and experiment with new runway timetables for his @vetements_official brand. WWD has learned that Vetements plans to stage its next coed show for the fall 2018 season on January 19 during Men’s Fashion Week in the French capital. Details about the timing and venue have not been confirmed — stay tuned on WWD.com to catch the latest. #wwdnews (📷: @giovanni_giannoni_photo)
@zacposen's go-to holiday gift? Cookies! "I'll usually bake cookies and send them as a gift," said the designer, who recently released his cookbook "Cooking With Zac: Recipes from Rustic to Refined." Get the recipe for his Brown Butter-Chocolate Chip Cookies via link in bio 🍪🍪🍪 #wwdeye #cookingwithzac
For @monsemaison’s pre-fall 2018 collection, Fernando Garcia and Laura Kim honed in on the brand’s many signatures — men’s wear, which was tweaked and feminized through deconstruction, proportion play and lots of bare shoulders. See the rest of the photos on WWD.com #wwdfashion (📷: George Chinese)
On Friday night, @yohjiyamamotoofficial received the Design for Asia Lifetime Achievement Award in Hong Kong. The 75-year-old designer has been celebrated for many years and is best known for his dark and avant-garde tailoring. “In my long career, in design, architecture, [I’ve been to] so many parties, this is the very first time that I have such a warm feeling, I really appreciate this,” Yamamoto said. #wwdfashion (📷: @dominiquemaitre)